Tuesday, Oct 5, 2016

Options Trading Research

Options Trading Research

I’ve been studying options trading. Since I don’t have a job I have time for this kind of stuff. I’m sure you’ve heard horror stories of people who lost everything in these kinds of trades. I believe it’s true. If they aren’t done correctly the risk exposure is huge. My approach is much more conservative.

Basically, I’m taking information based on technical and market data and making a decision which way a stock will move in a specific time period. Instead of buying 100 shares of stock outright, and the entire amount being subject to market fluctuation, I am limiting my risk to only the premium I paid for the right to control those 100 shares within set parameters. And beyond that, there are ways to structure a trade so the amount paid and the risk exposure is reduced even further.

The reason I am telling you this is because brokerage companies act as gatekeepers on whether you are allowed to trade options or not. It’s my money but they get to decide if I can use it in this particular way. I find this very curious.

I’ve purchased some stock in the past and watched it fall all the way to zero. I learned lessons. Expensive ones. The broker never interfered with my buying or selling of stock, where I have much larger amounts of capital exposed and at risk. I find this curious as well.

There is also the time factor of holding stock and making a profit. It can be years before any appreciation occurs. Depending on what stocks you are in, it is not always the best way to build wealth. And don’t get me started on most mutual funds.

What I am getting at is that option trading presents a vehicle to create modest amounts of gains, with very defined risk. It is a vehicle to generate wealth, yet it seems the brokers don’t want many people doing this. Today I had my “interview” for them to decide if I was “qualified” to trade options at the level I wanted…which is a level where I can reduce my overall risk and increase my probability of a successful trade.  I’ll know in a few days if they found me “worthy” to invest my own money in a manner I choose.

Oh well, on to more pertinent Ecuador things. Chase and Easton head out tonight for Quito. They are meeting one of their friends who is coming for a visit. After spending a few days in Quito they are all coming back to Cuenca. This friend was generous enough to bring an extra suitcase filled with things Heidi had shipped to his house.

It is like Christmas getting these kinds of “packages”. It keeps us in peppercorns, hopefully…the last shipment was confiscated at customs, maple syrup, spices, and just a variety of items we cannot get here. Chase has some shoes coming because he never could find a pair in his size here. My computer screen is experiencing some dead pixels, so I may be looking for a new computer to be brought over soon. Fingers crossed it doesn’t die on me.

The rain tonight was torrential and lasted about an hour, which was two hours before Chase and Easton’s plane was to leave from Cuenca to Quito. As I understand it, planes are landing and taking off in the rain after completion of the new runway. I have heard rumors that some pilots still decide if they will land of take off in the rain though. Hopefully it all works out.